The Market Environment
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Why must managers understand the market
environment?
Discuss Porter’s 5 forces model
Different structures in industry
External
Environment
Market
Environment
Macro
Environment
AKA Task Environment
Market Environment
Environment businesses in
same industry operate in
Change = Threat or Opportunity
Competitors
New
entrants to
the industry
Customers
Market
Environment
Substitute
Products
Suppliers
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Helps to define the competing arena.
Focus attention on competitors.
Help determine key factors for success.
Helps to be pro-active when changes occur.
Helps to identify opportunities and threats.
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Within immediate business environment.
Uncontrollable.
Can be influenced.
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Forces impact market environment.
Explains structures of industry.
Different profit potential.
5 Forces that determine industry structure:
1.
2.
3.
4.
5.
Competitors
Customers
Suppliers
Substitute products
Possible new entrants
Porter's Five Forces Model
Industry competitors
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Porter's Five Forces Model
Potential
entrants
Threat of
new entrants
Industry competitors
Rivalry among
existing firms
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Porter's Five Forces Model
Potential
entrants
Threat of
new entrants
Industry competitors
Rivalry among
existing firms
Threat of
substitutes
Substitute
products
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Porter's Five Forces Model
Potential
entrants
Threat of
new entrants
Bargaining power
of suppliers
Industry competitors
Suppliers
Rivalry among
existing firms
Threat of
substitutes
Substitute
products
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Porter's Five Forces Model
Potential
entrants
Threat of
new entrants
Bargaining power
of suppliers
Industry competitors
Bargaining power
of buyers
Suppliers
Buyers
Rivalry among
existing firms
Threat of
substitutes
Substitute
products
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
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SA free market economy  Competitive
market environment
Comply to legal requirements = Compete in
specific industry
 Experience fierce competition in SA
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Highest market share
Compete to acquire scarce resources
Competition for skilled labour – Very fierce!
 Extreme Salaries!
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Lower prices
Better quality products
Organisation more productive
Motivate to continuously improve
Encourage regular introduction of new
products
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Action  Reaction
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Government role:
 Fair competition
 No monopoly
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Competition commission
 Don’t abuse dominant positions
Press Release
11 May 2010
Computicket to face exclusionary conduct charges in Tribunal
The Competition Commission has referred a case of exclusionary conduct against Computicket to the Competition Tribunal for
adjudication. This case relates to the provision of outsourced ticket distribution services for entertainment events.
This referral follows five complaints that were lodged by Strictly Tickets CC, Soundalite CC (trading as Artslink), KZN
Entertainment News and Reviews CC (trading as Going Places), L Square Technologies CC (trading as TicketSpace), and
Ezimidlalo Technologies CC. These complaints were lodged during the period 2008/2009, and for purposes of investigation the
Commission combined them, as they raised overlapping issues.
With a market share exceeding 95%, the Commission identified that Computicket is dominant in the market for outsourced
ticketing services for entertainment events including theatres, festivals and live events.
In its investigation the Commission found that Computicket entered into long term exclusive contracts with theatre owners,
theatre producers, promoters’ and festival event organizers in the entertainment industry, preventing them from using any other
ticketing provider. These contracts are predominantly for a period of three years, and have the effect of excluding Computicket’s
rivals, with a harmful effect on consumers. This is alleged to have taken place from around 1999 to date.
“Computicket’s exclusive contracts prevent rivals from entering the market thereby reducing choice and convenience for
consumers. As a result the commission and fees that it charges for its services are higher than they would have been in a
competitive market,” said Commissioner Shan Ramburuth.
The Commission has asked the tribunal to levy an administrative penalty of 10 percent on Computicket’s 2009 turnover and to
declare the exclusivity clauses in its contracts with inventory providers as void and of no force or effect.
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AKA market & buyers
 All individuals with the need for an organisations
G&S
 Ability to pay for the G&S
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CONFLICT!
 Organisation = Maximum profit
 Customer = Highest quality lowest price
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Know who your customer is!
 Age
 Gender
 Marital Status
 Size of their families
 Literate or not
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Purchasing power and buyer behaviour.
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Design G&S to satisfy unique needs.
 Market research!
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Large bargaining power  Force prices down
 Bargain for higher quality
 Play suppliers against each other
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False or misleading advertising
03 Aug 2010
Mr Read lodged a consumer complaint against a Vodacom print
advertisement appearing in the Sunday Times during May 2010.
The advertisement promotes the respondent’s broadband offerings and
contains, inter alia, the wording “GET UP TO 60% MORE INTERNET, NEWS,
EMAIL, MUSIC AND SPORT. NOW AT THE FASTEST BROADBAND SPEED
AVAILABLE. Vodacom introduces up to 60% extra data at the fastest
available broadband speed … what’s more, our network is now 14.4 HSDPA
enabled. That’s more Internet for the entire family … Go to
www.vodacom.co.za to view Broadband data offers not included above …
More exiting Vodacom Broadband offers coming soon!”
COMPLAINT
In essence, the complainant submitted that the advertisement is misleading
as broadband is “generally taken to mean over 32KBps”, whereas Vodacom
“consistently deliver less than 20KBps”.
Given the above:
The general reference to broadband must be withdrawn;
The process to withdraw such general reference to broadband
must be auctioned with immediate effect on receipt of this ruling;
The withdrawal of such general reference to broadband must be
completed within the deadlines stipulated by Clause 15.3 of the
Procedural Guide;
The general reference to broadband may not be used again until
new substantiation has been submitted, evaluated, and a new
ruling is made.
Organisation dependent
on suppliers!
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Limited resources  Produce G&S
Organisation Resources  Suppliers
RIGHT QUANTITY
RIGHT PRICES
Competitive in the Market
Bank
Supplier of
capital
Capital
needed to
expand
Trade
Union
Supplier
of labour
Threat:
Strikes
Influence organisation
 Price or  Quality
Negative impact on organisation
profitability
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Product from different industry
Satisfies same need
As same product in industry
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Advantage for consumers:
 Limit on prices charged
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Change to substitute:
 Cost
 Quality
 Time
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Minimise threat of substitute products:
 Differentiate through quality, service, brand, etc.
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Influence on market:
  Market share
 Loss in revenue
  ROI
Barriers to entry = Seriousness of threat!
How difficult to enter an industry
And be competitive
High
Capital
Requirement
Loyalty of
customers to
existing brands
Concentration
Barriers
to entry
Produce
large
volumes @
low cost
Economies of
Scale
Government
Regulations
Low
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Industry:
 Group of Organisations
 Offer goods and services
 Similar/close substitutes
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Different industry  Different structure 
Different customer, supplier, profit potential
To outwit = Understand industry structure + Unique characteristics
Product
Differentiation
Barriers to
Entry
Concentration
Uniqueness
of industry
Government
Intervention
Economies of
Scale